It's a true story of the fishing boat Andrea Gail sailing into the confluence of two big storms and a hurricane. Sadly, all hands were lost at sea.
Since the 1997 publication of the book on which the 2000 movie is based, the words "perfect storm" have been used to describe those unique situations — both bad and good — that come along once in a lifetime. If you are a first-time home buyer, the perfect storm has arrived.
Last month, President Obama signed into legislation a $789 billion economic stimulus package that included something very important: an $8,000 tax credit for first-time home buyers.
This credit is a far cry from the one passed last summer.
Last summer Congress passed a $7,500 tax credit for first-time home buyers that sounded good at first glance. However, a closer look at the details revealed that buyers actually had to pay the tax credit back. It really was just a zero interest loan.
Just 111 people in the whole country applied for the program.
But this new program is making it a real deal to purchase a first home. The tax credit does not have to be repaid and is for 10 percent (up to $8,000) of the price of the home.
A "first-time home buyer" is anyone who has not owned a principal residence for the last three years. Even if you've owned a vacation home, but not a principal residence, within the last three years you can still qualify for the credit. So if the last date you owned a home was three years ago from today, you could buy a home and qualify.
An important part of the program that everyone needs to understand is that to qualify, you have to buy the home before Dec 1, 2009. It's retroactive to Jan. 1, so if you bought your first home any time after the first of the year you can still qualify.
There are income limits, though. Single people who buy their first home cannot make more than $75,000 to qualify for a full credit. And if you are married, you cannot have a household adjusted gross income of more than $150,000. If you make more than that, you may still be eligible for reduced credits.
There is a requirement that buyers must live in the new home for at least three years. If it is sold within three years the credit must be returned to the government. Exceptions will be made in certain cases such as death or divorce.
Consider how powerful home ownership is compared to renting. If you are renting an apartment for $500 per month with rent increases of only 10 percent a year, at the end of 10 years you will have paid $95,624. When you move out, you have nothing to show for it.
But what if you buy a home for $100,000, put $3,500 down through the FHA program, get a 5.25 percent interest rate — it is actually 5.125 percent as I write this — and live in it for 10 years?
Your monthly mortgage payment will be just $532 per month and after 10 years you'll have paid only $67,422 (plus property taxes). Of course, you will be able to deduct the interest on the loan and your taxes as well. Depending on your tax rate, you get a lot back.
Let's say you then sell the home for $122,000. After paying off your note and closing costs you pocket more than $19,000. You've spent $28,000 less and come away with $19,000 more. That's an improvement of $47,000 vs. renting. Which sounds better to you?
So, how does someone take advantage of the $8,000 tax credit? If you buy a new home between Jan 1 and Dec 1, 2009, you claim the credit when you file your 2008 taxes (before April 15) or when you file your 2009 taxes early next year.
Here is the confluence of the "perfect storm" of opportunity: An $8,000 tax credit coupled with the lowest interest rates in 30 years, joined by an unusually large inventory of homes from which to choose, offered by sellers who have lowered their prices well below what they were worth just two years ago.
This perfect storm won't last long; the buyers market window will be closing before the end of 2009. It's time to sail.
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